The Role of Foreign Direct Investment in Empowering Thai Labor Potential: A Socioeconomic Perspective Based on the Absorptive Capacity Framework

Abstract

This study aims to investigate the role of Foreign Direct Investment (FDI) in enhancing labor productivity in Thailand’s industrial sector. Utilizing secondary data from the World Bank's 2016 Enterprise Survey, which comprises a sample of 657 industrial establishments nationwide, the study employed multiple regression analysis using the Ordinary Least Squares (OLS) estimation method to examine the relationship between FDI, human capital, and labor productivity. The results show that FDI has a significantly positive effect on labor productivity at the 0.05 significance level, particularly in establishments with low-to-medium-skilled labor. Furthermore, the size of the establishment and the proportion of skilled labor also significantly and positively influence labor productivity at the at the 0.01 and 0.10 significance levels, respectively. However, the analysis of the interaction term between FDI and the proportion of skilled labor yielded a statistically significant negative coefficient at the 0.01 significance level. This suggests that the positive effect of FDI on labor productivity diminishes as labor skills increase. This finding aligns with the concept of absorptive capacity, which posits that a country's ability to absorb foreign technology transfer is conditional upon its domestic level of human capital. The study concludes by suggesting that attracting FDI should be strategically coupled with developing the low-to-medium-skilled workforce to bolster technological absorptive capacity and foster sustainable economic growth.